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Cash Management.docx

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University of Calgary
Management Studies
MGST 391
Ahmad Ali Sohrabi

Cash Management: Centralized Cash Management: 1. Avoids mix of cash Surplus and overdraft. 2. Large volumes of cash are available to invest 3. Any borrowing could be arranged in bulk at lower rates. 4. Foreign currency risk management in improved. 5. Specialist Treasury Department will employ experts. Decentralized Cash Management: 1. Great autonomy 2. Quick and more response to needs of individual operating units 3. More opportunities to invest on short-term basis. Float is amount of money tied up between initialization and finalization of payment. Measures to reduce Float include:  Lodgment delay should be minimum  BACS  CHAPS  Standing orders/ direct debit for regular payments  Lock boxes for international payments Cash Pooling is netting of Debit and Credit balances with same bank to reduce interest cost. How Cash surplus arises  By profitability  By low capital expenditures  By receipt from selling part of business How Cash surplus is utilized  Takeover bids  Buy back of shares  Short term investments o Banks o Investment in listed shares o Investment in debt instruments  Certificate of Deposits (certificates by bank acknowledging deposit for specified time)  Treasury bills (IOUs by govt. issued weekly for 91 days to finance govt. projects)  Eligible bank bills (IOUs by those top rated banks whose bill Bank of England agrees to buy)  Bills of exchange  Local authority bonds  Commercial papers Certificate of Deposits, Treasury bills and Eligible bank bills are Negotiable and Resalable. International payment modes:  Cheque  Lock boxes (speeds up payment by cheque)  Bills of exchange  Bank draft (cheque by a bank drawn on one of its own account)  Mail Transfer  It is a written payment order authenticated by official in sending bank which  Instructs by Airmail to pay a certain sum of money to a beneficiary.  Telegraphic Transfer  Like mail transfer but instructions are sent by cable or telex instead of by airmail.  Speeder, Costly and Confidentiality than Mail Transfer.  SWIFT (Society for Worldwide Interbank Financial Telecommunication)  Provides rapid electronic fund transfer  In addition to banks, users include Security houses, Exchanges, Money brokers, Fund managers etc.  International Money Orders Transfer pricing: Basis include  Standard Cost  Marginal Cost/ Full Cost/ Opportunity Cost  Market Price  Market Price – disc
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